Tesla Model 3 may be more of a luxury car than previously thought

The vehicle has a base price of US$35,000 and benefits from federal and state tax credits, but bearish UBS analyst Colin Langan (target price: US$185; current Tesla share price: US$342) thinks the Model 3 won’t be all that mass when it comes to its market.

“With a price point with options likely in the low US$40k range, comps would include the BMW 3-Series & Mercedes C-Class,” he wrote in a research note Wednesday, pointing to the two most important sedans in the luxury car business.

In truth, we’ve always been a bit unfair to the average consumer and to Tesla by calling the Model 3 a mass-market car. Even discounted from US$35,000, it will still cost more than basic, four-wheeled transportation, which can be had for less than US$20,000.

Pricing may also be rather important to Tesla moving forward as in the auto industry, profit margins on smaller sedans tend to be skimpy; the action is with crossovers, pickups, and SUVs. But with the Model 3, Tesla wants to scale production with decent, double-digit margins in the picture.

Luxury pricing will help it get there, covering up for the inherent weakness of launching a sedan in a market that’s turning against that type of vehicle and embracing SUVs.